market research

June 2020

June 2020 New York Commercial Real Estate Market Report

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New York Market Overview

Office Office leasing was virtually dead, except for TikTok who just rented 232,000 at 4 Times Square. A few landlords have lowered prices. Many are taking a wait and see attitude until Tenants return to work and the dust has settled. Retail The brick and mortar apocalypse keeps getting worse, as more national chains declare bankruptcy or announce store closings. Mom and pop retail is faring far worse with many lacking reserves to stay in business. Restaurants will hurt even more, once they partially open and have to pay full rent.

Sales Building sales were very very slow with only a handful of sales happening. Expect reprisings due to vacancy risk, collection risk and falling rental rates.

Manhattan Office:

Despite robust demand from the tech sector and coworking, the first quarter totals remained on par with recent quarters. The amount of available office space increased with more than 24 million square feet under construction.

Available sublet space has increased by 33% pre-covid. Expect more sublease space to come on the market as more companies permit or encourage work from home.

Morgan Stanley, JPMorgan Chase and Nielsen all expect to occupy considerably less space once the pandemic passes. Twitter emailed employees telling them that they’d be allowed to work from home permanently, though they will not decrease its office space footprint.

Facebook and Mastercard are the latest major employers to rethink their office needs as remote work grows in appeal. Mark Zuckerberg informed Facebook’s 45,000 workers that the tech giant would shift toward more working from home. Mastercard, too, is reassessing its physical footprint and mulling a consolidation of its operations.

As employers become accustomed to remote work and realize the potential cost savings in shrinking their office holdings, more companies have decided to do so permanently.

Law firm Allen & Overy has renewed its lease at 1221 Sixth Avenue with no plans to move its office. The deal is a five-year lease extension for 143K SF at the building.

KKR & Co. has subleased the former VaynerMedia space on the 24th floor of 10 Hudson Yards for 22,048 square feet.

TikTok and Durst signed the lease for 232K-SF in Durst’s One Five One, formerly known as Four Times Square. The transaction isn’t complete until a sign-off by lenders.

Blackstone and Brookfield Asset Management indicated that their firms were beginning to see opportunities to invest in distressed assets. But the expectation of better deals to come means investors aren’t jumping just yet.

CoStar finalized the acquisition of commercial real estate transaction platform Ten-X for $190 million.

Coworking:

Convene said it would reduce office capacity by 50% to allow workers to maintain social distancing. Industrious will keep communal areas closed for the first six weeks. Bond Collective will limit the number of people allowed in conference rooms. Serendipity Labs has launched a subscription program that is interchangeable between members and locations to help companies ease workers back to office work. WeWork will do daily temperature checks, near-continuous cleaning of certain high-touch areas and boxed lunches instead of family-style catering.

WeWork paid over 80% of its rent worldwide in April and May. The company is in discussion with landlords about paying the rest.

WeWork’s valuation has dropped to $2.9 billion.

Fitch Ratings put up a block of roughly 100,000 square feet at 33 Whitehall Street and e-commerce fashion site Moda Operandi, making 85,000 square feet available at 195 Broadway.

SL Green sues Chetrit to keep the $35M deposit posted for the purchase of the Daily News building.

Recommendations from the nation’s health protection agency would drastically alter how people work in offices. While in the office, workers should wear masks at all times and maintain social distancing whenever possible. Office guests, too, should be encouraged to wear face masks. Seating and office desks are spaced at least six feet apart — but if not possible, install transparent shields or other physical barriers. Instead of sharing a common coffee pot, offices should turn to pre-packaged, single-serve items.

Facebook CEO Mark Zuckerberg said that allowing its employees to work from home would enable it to draw from a larger pool of talent.

Retail:

Retail sales fell 16.4% in April despite an increase in online purchases. The largest monthly drop ever recorded. Clothing stores fared the worst of all with an 89% drop in sales.

Related CEO Jeff Blau’s company had collected 35% of its overall retail rents as of mid-April.

Brookfield Property Partners is now negotiating with 2,400 of its retail tenants across the country, who have been unable to come up with the rent. Their expectation is that 2019 was the peak for bankruptcies and 2020 will get a little better. The Canadian real estate company is looking to invest $5 billion in retail companies hit hard by the pandemic.

J.C. Penney plans to close 242 stores across the country, as part of its bankruptcy restructuring.

It plans to hold on to its best performing stores, which accounted for 82% of last year’s revenue.

E-commerce has been gobbling up market share from brick-and-mortar retailers for years and the coronavirus pandemic is accelerating it.

More than 100,000 stores will close in the next five years and e-commerce will grow to 25% of sales this year from 15% in 2019.

Neiman Marcus, which anchors Hudson Yards, is one of Related’s most high profile tenants, declares bankruptcy. The retailer had said it was the pandemic that triggered the filing.

As restaurants move to open, owners are agonizing over capacity constraints and social distancing guidelines, which are expected to result in a decline in sales. In turn, their landlords are sure to suffer from heartburn wondering whether the rent checks are coming.

Although New York City has yet to set restaurant guidelines, a 75-seat sit-down restaurant would allow for just 20 diners after accounting for employees, under a 50% capacity limit. The number drops to around five diners at a 25% capacity limit.

The Gap is among several retailers that have not paid rent lately.

Pier 1 Imports plans to shut down, becoming the latest retail casualty of the coronavirus pandemic. The chain has filed a motion seeking approval from a bankruptcy court to start winding down its retail operations as soon as possible, once its 540 remaining stores nationwide are allowed to reopen.

Starbucks Corp. is asking its landlords for rent concessions for a year at some of its company-owned locations, to offset the damage the coronavirus pandemic has done to the coffee giant's bottom line.

24 Hour Fitness Worldwide is planning for a potential bankruptcy even as it begins reopening its 430 locations. Clubs have so far reported around 30 to 50% of members returning.

New York Sports Club is also considering a Chapter 11 bankruptcy filing, in the wake of its failed FlyWheel deal.

Upscale bakery chain Le Pain Quotidien will be allowed to break 59 of its leases, in a decision the judge acknowledged is “unusual.” The locations have been closed since state and local governments issued shutdown orders at the beginning of the pandemic.

The New York City Council approved a measure that would protect restaurants and retailers from certain legal action if they violate their leases. The council approved the bill 44 to 6. The mayor has now signed the measure.

Chinos Holdings filed for Chapter 11 protection and J. Crew has agreed to give control of the company to major creditors including the hedge fund Anchorage Capital, by converting $1.65 billion of its debt into equity. It will hold onto its Madewell brand and keep operating its e-commerce operation normally. The retailer has 182 stores, 140 Madewells and 170 outlets and plans to reopen after lockdown restrictions are relaxed.

Daniel Kretinsky’s shopping spree continues. Earlier this month, the Czech investor bought a 5% stake in Macy’s department store and now he’s added a 6% stake in Foot Locker.
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